Use the Pareto Principle to evaluate productivity

Advanced technology has produced a variety of tools that support businesses operations, everything from handling daily tasks to managing large-scale projects. Something new and exciting is released almost weekly.

Advanced technology has produced a variety of tools that support businesses operations, everything from handling daily tasks to managing large-scale projects. Something new and exciting is released almost weekly.

Companies use a variety of applications that track and manage all aspects of business processes to establish priorities, reduce costs and enhance production. The profitability of a project or business is always the number one priority.

Although technology offers some solutions, the resulting information is only useful if reliable information is accessible and accurate.

A common assumption is that the relationship between inputs and outputs is balanced. Over the years research has proven that this is not entirely accurate. As well, the availability of skilled workers, cash flow gaps, and looming deadlines are all factors that affect the outcomes in any company.

The other factor overlooked is the law of diminishing return, or in economics terms, diminishing marginal benefit. Simply stated, productivity is reduced when attention is focused on a single input only. Rather than concentrating on critical processes, time is lost on the minor details.

In the 1940s, Dr. Joseph M. Juran, a quality management pioneer, attributed the Pareto Principle to the observations made by an Italian economist, Vilfredo Pareto. The Pareto Principle states that most things in life are not distributed evenly, that the majority of results come from a minority of inputs.

More commonly known as the 80/20 Rule, the theory states that in any endeavor a very few actions/things (20 per cent) are vital, while the majority of action/things (80 per cent) are trivial. Or putting it another way, 80 per cent of results commonly come from just 20 per cent of the efforts.

While the ratios may change, and the percentages don’t always total 100, the key point is to focus efforts on the key 20 per cent that contributes the most value, first.

There is some disagreement surrounding the theory when it comes to analyzing and streamlining business operations. Current thinking suggests that the 80/20 Rule is only beneficial once issues and have been tracked and analyzed.

However, the 80/20 Rule can be a useful tool to track and evaluate specific areas. It can actually highlight issues that are not obvious and therefore can be used to identify priorities going forward. Using this powerful tool can correct the imbalances and produce immediate results.

Which products or services creates the highest number of customer complaints? Quick surveys done by your customers and team will reveal which 20 per cent of your products and/or services account for 80 per cent of your customer complaints. When you know what the issues are, you can focus on resolving the cause the complaints.

Can you identify the top 20 per cent of your customers that account for 80 per cent of your business? If you can recognize your “raving fans”, then you can implement strategies to provide exclusive service. This means you will be able to anticipate their needs and target new products and services to these core customers.

Inventory control programs are designed to track precise information when used properly. How does your company evaluate day-to-day activities? Most companies carry far too much inventory. Apply the rule to reduce that 80 per cent of your stock that accounts for only 20 per cent of your volume.

Our expectation are that everyone should give 100 per cent effort all the time. Have you evaluated your sales team to establish who produces the highest percentage of sales? Spend 80 per cent of your people time with the top 20 per cent that have the most impact on you business. Reward positive behaviour and accomplishments.

For the owner/manager, it’s a difficult to fully appreciate that approximately 20 per cent of regular activities contribute to best results. When issues come up, it’s easy to let the focus get sidetracked. Don’t let small issues sap your time and attention. Determine the critical 20 per cent of activities that matter most and focus on the areas that will generate the highest overall productivity.

John MacKenzie is a certified business coach and authorized partner/facilitator for Everything DiSC and Five Behaviours of a Cohesive Team, Wiley Brands. He can be reached at john@thebusinesstraininghub.com.

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